It is the company’s largest acquisition yet—and perhaps ever—according to the Facebook founder and CEO.

Zuckerberg and Instagram founder Kevin Systrom are said to have first met on Thursday, April 5, mere hours after Mr. Systrom secured a $50 million investment round led by venture capitalist firms Sequoia, Thrive Capital, Greylock, and Benchmark. The pair talked for three days before finally agreeing to a deal on Sunday afternoon.

Such deals are usually not made so quickly, nor without a cadre of lawyers and financial assistants present, but Mr. Zuckerberg chose to pursue the deal largely on his own. The report says he was afraid of Mr. Systrom reacting negatively had he been approached through lawyers first.

While the Instagram founder initially sought $2 billion, Mr. Zuckerberg planned to pay largely with stock, and suggested Mr. Systrom “[look] at the value of Instagram as a percentage of the value of Facebook” over time instead.

Although Facebook’s board did eventually vote on the deal, sources tell The Wall Street Journal, the vote was "largely symbolic."

Doesn't this defeat the purpose of having a board? I agree with hanser, I wonder how this will affect going public.

Zuckerburg's stock will carry many more votes per share than the IPO stock. So he will still be in control.

On the bigger point of paying for Instagram:1. A large part of facebook is it's photo service. It is the biggest photo sharing site and it was facing growing competition from Instagram.2. Facebook is facing a demographic problem in that it is "for old people" especially when compared with instagram.3. Instagram is a great mobile product that was a real threat to facebook's dominance in photo sharing.4. Instagram was mostly paid for using facebook stock. So the current shareholders got diluted, big deal.

Steve would NEVER have paid a billion dollars for ANYTHING. Let alone a non-profitable pictures editing company.

Think about it, a BILLION dollars is a lot of developer time. Not sure what Mark is smoking, maybe his immaturity is coming through. If so google had it right having a mature CEO in place while the founders "grew up"

Instagram is a good mobile client while all mobile Facebook clients suck. If the Instagram team was given control over the Facebook mobile client this might be worth it, but my guess is with King Zuck running the show that this will go down as a foot note on how not to run a business.

Steve would NEVER have paid a billion dollars for ANYTHING. Let alone a non-profitable pictures editing company.

Think about it, a BILLION dollars is a lot of developer time. Not sure what Mark is smoking, maybe his immaturity is coming through. If so google had it right having a mature CEO in place while the founders "grew up"

Steve would NEVER have paid a billion dollars for ANYTHING. Let alone a non-profitable pictures editing company.

Think about it, a BILLION dollars is a lot of developer time. Not sure what Mark is smoking, maybe his immaturity is coming through. If so google had it right having a mature CEO in place while the founders "grew up"

I mean the possibility of being challenged by the board. Sorry for not being more specific. =)I agree with your point, though.

Instagram is a good mobile client while all mobile Facebook clients suck. If the Instagram team was given control over the Facebook mobile client this might be worth it, but my guess is with King Zuck running the show that this will go down as a foot note on how not to run a business.

Or the opposite. Might be a revelation for how to efficiently do business. Boards are often over-rated.

Steve would NEVER have paid a billion dollars for ANYTHING. Let alone a non-profitable pictures editing company.

Think about it, a BILLION dollars is a lot of developer time. Not sure what Mark is smoking, maybe his immaturity is coming through. If so google had it right having a mature CEO in place while the founders "grew up"

I'd say that about $990 million was paid for the most promising competitor in the photo sharing world and its loyal user base. The developer time saved was worth the remaining $10 million.

Might be a reflection on the real value of facebook stock. It appears to not be worth 1 billion real dollars. Try the same deal will with 1 billion Groupon stocks and Instragram would have laughed at him. t d

1. While I respect the Wall Street Journal...I find it hard to believe that this deal was made in a vacuum without any board members aware of what was going on. I think the source and story have been slanted to sell newspapers. It does sound juicy when you read it, no?

2. You can't grow a business without taking risks. Buying Instagram for that much may be a risk. But walking away was probably a riskier alternative considering the threat Instagram could have posed.

3. Everyone should calm down...the "purchase" price was with stock options and not cash.

4. How many of us posting here are CEOs and filthy stinking rich? Not I, unfortunately. So who are we to criticize Zuckerman's decisions?

After this move I wonder if Zuckerberg can handle the public company status. Personally I think Facebook is not a good long term investment. Nobody has yet proven to me that any internet site can survive and be relavent in the long term. I also see Facebook backtracking on privacy when it comes to ad revenue. Because let's be honest. Once a company has stock holders to answer to. It tends to worry more about revenue growth and less about users.

1. While I respect the Wall Street Journal...I find it hard to believe that this deal was made in a vacuum without any board members aware of what was going on. I think the source and story have been slanted to sell newspapers. It does sound juicy when you read it, no?

2. You can't grow a business without taking risks. Buying Instagram for that much may be a risk. But walking away was probably a riskier alternative considering the threat Instagram could have posed.

3. Everyone should calm down...the "purchase" price was with stock options and not cash.

4. How many of us posting here are CEOs and filthy stinking rich? Not I, unfortunately. So who are we to criticize Zuckerman's decisions?

1. Given Zuck's reputation for extreme self-interested motives I believe the story as told.

4. Just because you are not in the same position doesn't mean you can't comment. I'm pretty sure no one is the president of a country, but that doesn't stop people from offering opinions based on their experiences and world views.

First, Facebook is not currently public. There are no set rules for a private company in what the role of the board and the CEO are in this situation. It is whatever the various investors agreed upon. Even if the board members and/or investors are a little miffed about it, it's unlikely that this process goes against that agreement. Zuckerberg is a pretty smart guy; I'd be stunned if he didn't ask the General Counsel "can I do this without board approval?"

Second, even a public company may delegate certain types of authority to the executive staff. While $1 billion is a big number, it still represents only 1% of the estimated value of the company. An acquisition equal to 1% of the existing company would not necessarily require board approval at many companies (or might only require approval by a small sub-committee of the board -- maybe a three or four member "investment committee", which would tend to include the CEO and maybe only one non-employee board member).

Instagram is a good mobile client while all mobile Facebook clients suck. If the Instagram team was given control over the Facebook mobile client this might be worth it...

I have to disagree with Instagram being a 'good' mobile client. It might be more stable than Facebook's apps and the UI more simplistic, but that's because it doesn't have to do much. The UX itself (including the slight skeumorphism) can be frustrating.

Part of the reason the Facebook app sucks is because of Apple's restrictions. The lead developer of the original iPhone app -- Joe Hewitt (also of Firefox and Firebug fame) -- left the company over it awhile back (complete with blog post) to pursue developing better tools for developers. If Joe can't design a good experience, I highly doubt a single lucky designer (or however many they have on their team) and their devs could do any better.

Also, anyone who spends anytime on Reddit/the internet in general understands the implications of posting -anything- on Facebook -- especially photos, even (and sometimes especially) if your feed is private. That Zuckerberg would invest in an application that focuses on getting more content onto his site instead of investing that money into security implementations his site so badly needs says a lot about the future fall of Facebook.

I don't know how this calculates into Facebook's net worth but I hope dumb moves like this bury the company and the product goes the way of MySpace. I still can't understand why all it's users need to share their lives with the world...oops, I mean a select group of their closest friends.

Ballsy move, but I think pretty good purchase. Instagram is pretty cool, I really enjoy using it and I'm not even that artistically inclined. I just like playing with photos , sometimes they turn out very cool other times just fun and good conversation starter.

It is a surprisingly well done app because its simple and powerful. And ive found instagram is a good way to strike up a conversation with girls when I'm out.

A rather important detail missing from this write-up is the fact that Zuckerberg himself holds a majority -- i.e. controlling -- interest in Facebook's voting stock. This is important because the board of directors is intended to represent the interests of shareholders to executive management.

While (nearly) closing a deal of this size without first informing or seeking counsel of the board is certainly atypical, and perhaps ill-advised as a general practice, it is not necessarily a bad idea in all circumstances nor is it necessarily a problem from a corporate law standpoint. It is true that executive management generally has license to open, negotiate, and close business deals and acquisitions under a certain materiality, but that was not the case here. On the other hand, it doesn't matter. That's because, as I noted above, the board intermediates between shareholders and management.

Here, Zuckerberg controls so much of the voting interest that he can unilaterally make numerous decisions that would otherwise require, as a legal matter, prior consultation and consent from the board. The only decisions that Zuckerberg cannot make are those that, as a matter of law or Facebook's own bylaws, require a supermajority of shareholder votes (which he is just short of). But anything requiring only a majority he can do by fiat.*

That's also true post-IPO, at least to the extent that he retains a comparable voting interest. It might result in some additional scrutinty, public grousing, and almost certainly a minority interest discount on the publicly traded stock on account, but it is not problematic from a corporate law or regulatory standpoint. To some extent, it may even be seen as a positive, given the rather fast-moving world of social media and web-oriented business startups. Or course, that depends on how much trust you have in Zuckerberg's vision and business savvy.

* There are some minor caveats and exceptions, mostly related to affording minority holders some protections in certain circumstances, but by and large the statement is true.

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There are no set rules for a private company in what the role of the board and the CEO are in this situation. It is whatever the various investors agreed upon.

Your first statement isn't true, though you are correct on the latter point the companies can modify most aspects of corporate law through their statement of partnership or incorporation and their bylaws. As I noted above, however, that's not unique to private companies.

Many public companies, particularly large public companies, have relatively standard (within a range of "standard") provisions for shareholder meetings, board approvals and committees, and so forth. But other than various disclosure and audit requirements, a publicly traded company is not precluded from having idiosyncratic bylaws or from being controlled by a majority holder simply virtue of its being public. It's just less common.

1. A large part of facebook is it's photo service. It is the biggest photo sharing site and it was facing growing competition from Instagram.

Bigger than Flickr? As in 'number of members' or 'number of photos'? (I have no idea.)

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2. Facebook is facing a demographic problem in that it is "for old people" especially when compared with Instagram.

Gotta love Internet Time.

It makes dog-years seem like decades in comparison.

Flickr is dying thanks to 5 years of stagnation courtesy of the Yahoo acquisition. Facebook was around 250 million photos uploaded a day. Instagram, before the Android app was around 5 million photos per day but that should've doubled.

Does this really project confidence in investing in this company? Instagram is way over valued as is Facebook. I question if Facebook is worth $1 billion much less Instagram.

It seems likely that they bought Instagram because it was the only potential competitor to facebook. No other social media platform is remotely close to being a competitor in terms of getting normal people to share their lives on line with others. While instagram may or may not be worth 1 billion, maintaining facebook's monopoly is.

huh... I didn't realize there were so many billionaire business owners reading Ars. I'm sure the people commenting here know exactly how Zuckerberg should invest Facebook's money.

One doesn't have to be a billionaire to realize a billionaire is doing something stupid. Rupert Murdoch was even richer than Zuckerberg, but he was clearly quite idiotic in his dealing with myspace. It's even worse in Zuckerberg's case, because Facebook's success fell mostly to factors that had little to do with him:1. right place at the right time2. ideal initial demographic to make something cool (college students)3. myspace went to shit much faster than Facebook did at a crucial time, allowing it to reign supreme

There was very little that was technically great about facebook initially (and even today, really), and it's coasted primarily off of momentum.

tayhimself wrote:

Zuckerburg's stock will carry many more votes per share than the IPO stock. So he will still be in control.

On the bigger point of paying for Instagram:1. A large part of facebook is it's photo service. It is the biggest photo sharing site and it was facing growing competition from Instagram.

Is it really the biggest? I'm pretty sure flickr is bigger, and it seemed that instagram was widely used via facebook anyway.

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2. Facebook is facing a demographic problem in that it is "for old people" especially when compared with instagram.

That seems strange to me. I recall when Facebook was for college kids, and then when it was for college kids and high school students, and now it is for everyone with an email address. Also, I'm not entirely sure how buying Instagram fixes that.

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3. Instagram is a great mobile product that was a real threat to facebook's dominance in photo sharing.

I'm not convinced it was a real threat in any way, and I sure as hell know it wasn't worth a billion dollars. Even if it was, they almost certainly could have easily have gotten it for a fraction of that.

Flickr's community and the quality of the photos (in addition to the search capabilities) are what makes it a superior product that will have a longer shelf-life. There's only so many filtered duckfaces and photos of food that matter to me. Not to mention that Facebook continues to downscale images uploaded to it, which makes it entirely useless.

Yahoo's been letting it fall by the wayside, as they have a tendency to do, but quality trumps quantity here and with Yahoo scaling down their overall business, I wonder if they don't have better plans for it soon. Regardless, it's still ahead of the game.